Unsure of economic revival, says Chris Wood; cuts India exposure


Fading hope of a stimulus by the government amid a tottering economy, sub-par corporate earnings and the sudden focus on Jammu & Kashmir (J&K) that has added an additional negative to the Indian narrative has forced Christopher Wood, global head of equity strategy at Jefferies cut his exposure to India by one percentage point (1ppt) and allocate more to Indonesia.

In his weekly note to investors, GREED & fear, Wood says Narendra Modi should not have allowed himself to be distracted by the execution of the Bharatiya Janata Party’s (BJP’s) agenda on Kashmir which, like demonetisation, was planned in great secrecy with many cabinet ministers kept in the dark, when all the evidence is that the Indian economy continues to weaken.

“For now, GREED & fear’s view is that the Kashmir aggravation has added an additional negative, since GREED & fear is assuming the security situation will now get significantly worse. GREED & fear is not so sure what Modi can do about the economy in the short-term. Some of this slowdown, particularly in the auto sector, reflects the continuing liquidity squeeze in the NBFC space triggered by the default of formerly Triple-A rated IL&FS a year ago,” he wrote.

Fiscal boost?

Wood is not alone while voicing concerns about the slowdown in the Indian economy and the liquidity crunch plaguing the system. In their recent report, analysts at Bank of America Merrill Lynch, too, have stressed the need for a fiscal stimulus.

“Overall, there is a need to ease financial conditions to prevent further deterioration in the economic outlook. The first step in this regard would be to come out with a ‘significant’ fiscal package – one that does not materially disrupt the demand supply math of local currency bonds. The only way to achieve this is by tapping into the global savings which are in massive search for higher yields,” says Rohit Garg, fixed income and currency strategist for Emerging Asia at BofAML.

On its part, the Reserve Bank of India (RBI) has trimmed growth forecast for the Indian economy for 2019-20 to 6.9 per cent from its June forecast of 7 per cent. On the other hand, the International Monetary Fund (IMF) and the Asian Development Bank (ADB), too, have revised their estimates downward. The IMF, for instance, expects the Indian economy to grow at 7 per cent and 7.2 per cent, respectively in 2019-20 (FY20) and FY21.

Market valuation

On market valuations, Wood says India still continues to be expensive despite the sharp correction seen since the presentation of the Budget on July 5. That said, he believes the non-performing loan (NPL) issue with public sector banks (PSBs) should have been addressed by the government on priority, which would have allowed for their ‘recapitalisation and rationalisation’.

“The Nifty50 now trades at 16.7x one-year forward PE, compared with an average of 15.2x since 2008. The bottom line is that equity investors need to see evidence of a cyclical pickup to get excited, since more monetary easing is already assumed, and there will remain legitimate scepticism about the impact of such easing,” Wood wrote.


MSCI AC Asia Pacific ex-Japan weight (Aug 21, 2019)









Hong Kong














New Zealand




All figures in %

Source: GREED & fear, Woods weekly note to investors


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